Beyond Price in a Business Deal
Axial had an article that rings true with our experiences working with business owners and those looking to own. Being on either side of a transaction can be an emotional roller coaster. When a buyer finds a good business opportunity, many times it is the connection with the owner that is the ‘closer’ for the deal and same with the seller.
A recent post on Axial quoted the sellers when finding the right buyers: “We looked at a lot of companies and we got into deep discussions with a few, but it was very clear early on that we were going to put a deal together with Rayser. They were just good people,” says Kelly. Price was a consideration, but not the most important one. “Jamie and I had friends who had sold businesses before, who told us, ‘Just take the best offer and walk away.’ But that’s not who we are. We live in a community of 1,100 people, and we wanted our business and employees to stay here.”
Most business owners have either started the business or have grown the business and want to it succeed, so the right buyer is key. Our database has hundreds of vetted buyers looking for the right fit. The Lakes Business Group team is ready to help you, the business owner, get the right price for the business and find the right buyer to build on the business you’ve grown.
Past Clients’ Testimonials
Our team’s commitment to the successful sale of your business is shown in some of our former clients’ comments: One owner stated: ‘Just a note to tell you how much we appreciate your dedication to make a successful sale for our business. Your knowledge, experience and support were invaluable and helped to to make important decisions. How fortunate we were to have you as our partners in the transaction.‘ Another owner wrote: ‘VR Lakes did an outstanding job of developing and marketing the Business Profile. This piece was the core tool for securing buyer interest that lead to many showings. Mark listened to my concerns regarding prospective buyers and eventually found us a great buyer who was a good fit, at an acceptable price. For me this was the key factor in securing the deal. The overall process and closing went very smoothly’. Check our testimonial page to view these and other comments from clients.
Transitioning after Selling your Business
Regardless of the reason, when a business owner decides to exit the business, the process can be an emotional time. Part of the transition is communicating with your employees and the emotions and stress that they may feel during the transition period. Also, you and the new owner assessing how to tell the customers, suppliers and any other key people associated with the business.
From feelings of relief and excitement to disturbed, anger and concern about the future of the business as well as your future without the business as part of your life. It is okay to take the time to mourn this loss. You now have the time to slow down and consider the next step.
The article in Inc.com tells of an owner who sold her company to pursue a dream of living abroad which gave her new perspectives.
“When I sold my company to Caliber Corporate Advisors, I spent two months pursuing my dream of raising my children overseas by living in Nicaragua and Costa Rica,” says Joy Schoffler, Founder of a FinTech focused PR firm, Leverage PR. “It was really amazing getting the time to read, paddle board, and just be.”
“Now that I am home and back in the swing of things, I am looking at everything in a new light. In addition to continuing to serve as a senior advisor at Leverage PR and on AARP’s and SXSW’s Accelerator advisory boards, I have gotten a chance to serve as an advisor to companies I’ve had a passion for over the years: Wealth Migrate and The Experience Firm. Having the time and energy to dedicate to companies I believe in is a really cool part of this phase,” adds Schoffler.
Need for an Exit Strategy
Of course there is always a percentage of business owners who regret their decision after it is sold. If you are contemplating and exit strategy in the next 5 or so years, begin your plan now rather than waiting. Planning now reduces the risk of regretting the sale. If you need help in a future exit plan, reach out to our team of business advisors who can help with information that can help.
Selling your Business – Starting the Process
1- Initial Meeting: In the first meeting you’ll be introduced to our company and how we can help with the value of your business. During this meeting, the sales rep may ask to review your business tax returns, company financials, any sales or marketing materials and any other relevant information that may help explain your business in more detail. After this initial meeting, a decision will be made whether to move forward at this time.
2- Recast Financial Statements & Market Value Analysis: Our Lakes Business Group (LBG)
sales rep recasts or normalizes your financial statement to reflect non-reoccurring expenses and prepares a market value analysis. If the decision has been made to obtain a third-party business valuation, the sales rep will prepare the business outline and coordinate with the Valuation Analyst. Our goal is to get the most value for the business.
3-Proposal: LBG sales rep will present and explain the recast financial statements and the market value analysis. Once a comfort level has been established and both sides feel that LBG is a great fit to work in the seller’s best interest, the sale rep will provide a proposal regarding the cost of services.
4-Documentation: You, the seller, will provide the LBG sales rep with the necessary documents and data required to sell you business. LBG prepares a business profile based on the information you have provided. Details are not released to any prospective buyers without the execution of a non-disclosure agreement to protect the confidentiality of your business.
5-Advertising and Marketing: Lakes Business Group team takes control of the advertising and marketing for the sale of your business, which results in the highest possible response and the greatest number of prospects. Your business will be advertised on our website, as well as numerous other websites featuring ‘businesses for sale’. Our office is associated with VR, an international professional business broker organization, so the business is also featured on the VR website. Besides online advertising, we send letters to other businesses who may be looking for an acquisition, as well as marketing to our database of over 20,000 vetted buyers looking for a business to purchase.
6-Buyer Qualification: As mentioned in #4, all prospective buyers must sign a non-disclosure agreement before reviewing your business profile. We also vet the financial capability prior to introducing prospective buyer to you, the seller. In our business, we’ve seen it may take 39 interested buyers to find one qualified buyer for your business.
7-Business Presentation: After the buyer is financially qualified and the LBG sales rep has talked with them and feel there is a good fit for your business, a conference call or meeting is scheduled with you, the seller, and prospective buyer. A showing of the business may be scheduled at the same time.
8-Offer to Purchase and Presenting the Offer: We encourage the buyer to write a fair and equitable offer with an amount of earnest money to be paid up front. Presenting the offer to purchase includes an explanation of the terms and conditions, any contingencies and background information on the buyer.
9-Offer Acceptance or Counter Offer: You may accept the offer as it is written, or with the help of your LBG sales rep create a counter offer or reject the offer entirely.
10-Mutual Acceptance: When all parties agree to the terms and conditions of the sale, and sign all counter offers and amendments, the offer becomes a Purchase Agreement.
11- Assist with Financing: LBG has numerous financial resources including lenders who specialize in business loans. With our assistance you and the buyer can determine which financing will work best for both parties which will end in a successful transaction.
12- Due Diligence: Almost all offers are contingent upon the buyer’s inspections and approval of all facets of the business operation including financial records. The coordination due diligence process is a crucial step in a successful sale. LBG will keep a spreadsheet of the items needed and completion dates to keep both the seller and buyer on task.
13-Note and Lien, Search, Clearance or Assumption: If there are existing loans, liens or equipment leases that the buyer is to assume, LBG can help with transferring those obligations. All liens must either be cleared or transferred to the new buyer, if part of the contract.
14-Inventory: Arrangements are made for the seller and buyer to count and price the inventory if it applies to the business that is being sold. If the inventory is large or complex, it may be necessary to outsource to an inventory service.
15-Closing: After signing the final closing documents the business is transferred and the funds are distributed. Congratulations! you have sold your business!
Eight Reasons to Hire a Business Broker when Selling Your Business
- Maintain Confidentiality: At Lakes Business Group, we protect the identity of our clients. All our prospective buyers sign a confidentiality agreement before seeing a business profile. Some of our clients ask us to run the buyer’s names by them so they can approve before disclosing the business profile.
- Determine the best selling price: Every business is different, with many variables that have an impact on the value. Our team has access to databases that can be used as reference points as well as the experience of ten years plus in business valuation and selling businesses. Being a ‘third party’, we can see the business from a buyers’ perspective.
- Marketing: Because all we do is business acquisitions, we know where and how to market for your company’s business. A business broker will know what to highlight in your business to find the right buyer. Our team will create the business profile for your business. Usually a full business profile is only for those who have signed a confidentiality agreement. We also prepare a ‘teaser’ sheet that is more generic for marketing your business without giving confidential information.
- The business owner can continue to run the business. An owner’s lack of attention to running the business can cause business performance to suffer.
- Qualify and Screen Buyers: Lakes Business Group has been doing this for over 10 years and have a database of over 20,000 vetted buyers. We’ll introduce the buyer candidates to the sellers after they have been vetted.
- Mediate and negotiate with buyers and help the buyer to obtain financing.
- Receive purchase offers to present and help evaluate them to the sellers.
- Manage the Due Diligence Process: When the business is under agreement, the buyer will want a thorough due diligence of the financial and legal aspects of the business.
Begin with an Exit Plan
One reason to have an exit strategy is it keeps you on task to grow your business, so when it’s time to exit, you’ll have an attractive business for buyers. Another quote from Stephen Covey’s book is “Changing our habits to improve what we are can be a painful process. It must be motivated by a higher purpose, and by the willingness to subordinate what you think you want now for what you know you want later”.
Below are some questions to ask to help you prepare for an exit strategy:
- What will make your company attractive to a buyer?
- Is your company growing?
- Is your business dependent on you?
- Do you have a strong management/leadership team?
- Is your team able to handle the day to day operations of the company?
- Are there systems and structures in place for running the business?
- Are your financial records in order and up to date?
As you answer these questions you’ll see how you need to start preparing your exit plan so you can maximize the value of your business when it’s time to sell. This can be overwhelming, so start small by changing one thing. A question to start with is, is there one thing you can do that you aren’t doing that would make a difference in your business?
Our experienced team can help with getting an exit strategy in place for your business. Getting the a business valuation may be the first step to see where you are at and how to improve.
2018 – Right Time to Sell your Business?
Because of the strong business climate, 2018 may be the right time to sell your business. When you do plan to sell, here are some ways you can help in the process:
- Be Friendly and cooperative: When the buyer asks for information, provide it to them in a timely manner. This helps with building trust and gives the impression that you have nothing to hide.
- Communicate openly and honestly: Most transactions are closed in a timely manner when trust and good chemistry exist between the Buyer and Seller. This is built through honest, open communication.
- Avoid being defensive: Buyers may ask personal questions, but rarely are they intended to serve any purpose other than gathering needed information for a Buyer to make a decision.
- Help the Buyer see himself/herself as the new Owner: Let the Buyer know they are capable of successfully managing this business.
- Make your Business a Showplace: First impressions count! A Buyer may draw conclusions about product quality and the organization of the business based on the appearance of the facility.
- Be candid and optimistic about growth opportunity: A Buyer will look at the business from the perspective of managing and improving it. Help the buyer understand the opportunities and allow them to see the upside potential.
- Make Yourself available: Once a buyer has been identified and qualified, plan meetings when you will be available and not have a threat of having to cancel or being interrupted. This is critical as the due diligence process begins.
- Keep Financial Records Current: When a Buyer has to wait weeks for the Seller’s accountant to prepare financial statements, the enthusiasm to move forward is usually lost. When you decide to sell is the time you should notify your advisers of your intentions and explain that you will require their services in a timely manner.
- Understand the Emotional Roller Coaster: There is no way to avoid the emotions you will experience as you go through the due diligence and sale process. You have poured yourself into this business the past number of years and you need to keep reminding yourself the reason for selling. The Buyer will also experience emotions as he/she goes through the process.
- Create a team of professional advisers: Have a team of qualified transaction-oriented professionals who understand that your goal is to sell the business in a timely manner. Bring them into confidence early in the process so there are no surprises.
- Continue to focus on your business: It is easy to let the enthusiasm about the sale distract you from running your business. It’s important that you continue to focus on “business as usual” so that the business remains healthy and vibrant during this critical time. A Buyer wants a business that has been well managed right up to the sale. Do not postpone or ignore critical decisions.
These points are taken from an article written by Adam Petricoff from the VR Office in Charlotte, NC.
Doing Business in 2018
1- the Experience economy: With the Millennials having more say in our economy with their spending dollars, businesses are catering to them. They want to experience an emotional connection. They are looking for organizations that speak to their reason and their emotions. They are looking for organizations with shared values. One of the examples is the State Street’s Fearless Girl statue. State Street Corporation, the $2.6 trillion asset manager, installed the Fearless Girl statue on Wall Street, agreed to settle US allegations that it discriminated against hundreds of female executives by paying them less than their male colleagues. “State Street is committed to equal pay practices and evaluates on an ongoing basis our internal processes to be sure our compensation, hiring and promotions programs are nondiscriminatory,” the company told Bloomberg.com.
As you look for goals for 2018, your business must find ways to be honest and transparent. Find ways to speak to the emotions and reason in your marketing – tell a story. One example of a 2017 television ad is the Audi commercial titled ‘Daughter‘ and the NFL commercial titled ‘Inside These Lines‘. Both of these ads tell a story through the images and the narrator that connect on an emotional level
2- Creating Shared Value. This is a trend that has been talked about the past few years. Creating shared value is the practice of creating economic value in a way that creates value for society by addressing its needs. An article written in October 2016 referred to this new era as Shared Values Economy. One of the examples is how businesses are partnering with non-profits; In 2015, the Starbucks Foundation assisted at least 5,000 smallholder Tanzanian coffee farmers and their families. In 2016 Whirlpool company partnered with Habitat for Humanity to provide washer and dryers for the homes built.
This article has highlighted just a couple of the trends that have changed in the past few years. There are many articles written on 2018 business trends. Below are links to three of them.
Do You Have a Business Exit Strategy?
|Deal Size||#1 Reason||#2 Reason|
|$500 – $1MM||Retirement||Burnout|
|$1MM – $2MM||Retirement||TIE: Burnout/Opportunity|
|$2MM – $5MM||Retirement||New Opportunity|
|$5MM – $50MM||Retirement||Burnout|
|These stats are fom an IBBA.org article in early 2017.|
Business owners assume their business is salable, but that is not always the case. By not having an exit plan and understanding the value of your business, you are taking a huge risk. Even if you are not ready to sell your business, you should get an annual estimate value of your business. Lakes Business Group can help. Our agents work with businesses in all industries and can provide an evaluation for your business with industry comparisons to help you properly prepare ahead.
Five Business Exit Strategies
Entrepreneur.com has a article with five primary exit strategies available to most entrepreneurs, written by Stever Robbins. Following is a short synopsis of these five strategies.
1- Just Take It: One favorite strategy of forward thinking business owner is simple to bleed the company dry on a daily basis. I mean pay yourself a huge salary, reward yourself with a gigantic bonus regardless of actual company performance, and issue a special class of shares that only you own that gives you ten times the dividends the other shareholder receive.
2- the Liquidation: One often-overlooked exit strategy is simply to call it quits, close the business doors and call it a day. I don’t know anyone who’s founded a business planning to liquidate it someday, but it happens all the time.
3- Selling to a Friendly Buyer: If you’ve become emotionally attached to what you’ve built, even easier than liquidating your business is the option of passing ownership to another true believer who will preserve your legacy. Interested parties might include customers, employees, children, or other family members.
4- the Acquisition: Acquisition is one of the most common exit strategies: You find another business that wants to buy yours and sell, sell, sell. If you choose the right acquirer, your value can far exceed what would be reasonable based on your income. How do you select the right company? Look for strategic fit: Which acquirer can buy you to expand into a new market, or offer a new product to their existing customers?
5- the IPO (initial public offering): There are millions of companies in the U.S., and only about 7,000 of those are public. If you’re funded by professional investors with a track record of taking companies public, you might be able to do it. You start by spending millions just preparing for the road show, where you grovel to convince investors your stock should be worth as much as possible. (You even do a “reverse split,” if necessary, to drive up the share price.) Unlike an acquisition, where you craft a good fit with a single suitor, here you romancing hundreds of Wall Street analysts. If the romance fails, you’ve blown millions. And if you succeed, you end up married to analysts. You call that a life?
This is a small portion of the article titled “Exit Strategies for your Business” by Stever Robbins
Business Information Needed when Ready to Execute your Exit Strategy
- AR Aging Report
- AP Report
- Number of Customers in Database/Number of Active Customers/Customer Concentration
- Number of Suppliers of Vendors/Supplier/Vendor Concentration
- Vending Contracts
- Maintenance Contracts
- Lease/Purchase Agreements
- Corporate Employee Chart
- Employee Benefits Summary
- Corporate Documentation
- Corporate Insurance Policy
- Any Shareholders agreements
IF REAL ESTATE IS OWNED:
- Floor Plans
MISC ENGAGEMENT DOCUMENTATION:
- Partnership/Consent of Spouse or Corporate/Partnership Resolution
- Licenses & Permit Documents & Process to Obtain Licenses and Permits
- Copies of Patents, Trademarks, Copyrights, Etc.
- Description/Documentation of Technology being used
- List of products and services sold Top 5 Income Producing Items
- Any outstanding legal issues
Why a Business Broker – what do they do?
1- Confidentiality protects the seller from their customers, suppliers, employees and others from finding out their business is for sale until it has been sold. The potential buyers sign a non-disclosure agreement before knowing the name or location of the business.
2-Help provide a fair market value. Based on their experience from previous sales and knowledge of the market helps determine the highest purchase price possible.
3-Have experience in handling complex issues in the sales process and anticipating them before they arise.
4-Can help remove some of the the stress and emotional challenges in the sale of the business.
5-The business owner can continue running their business while the business broker handles the marketing and inquiries for the business transaction.
6-Prepare a professional marketing package to attract the best possible and qualified buyers.
7-Screen out the time wasters and unqualified buyers who will not be able to get financing..
8-Act as a referral source to other professional advisers used in the sales process, such as attorneys, accountants, lenders and others when needed.
9-Prepare all offers to purchase on proper legal forms without needing expensive legal staff to draw up the offer terms and conditions.
10-Assist in due diligence process in making sure the buyer is informed on all the financial aspects of he business.
11- Keep the process moving forward by coordinating the landlord assignment of the lease and other details before the closing.
12- At the completion of the sale, business broker’s get their ‘success fee’ for their efforts in getting the deal done.
If you are thinking of selling you business, contact our office by phone or email and one of our agents can help.